Saturday, 26 September 2009

Will China raise the stakes on US weakness

First, apologies for not posting recently. I now have a senior academic management role (sigh), have been at an international conference and have been involved in writing a number of research papers with an academic visitor.

But now I should be able to do better - apologies again.

What is interesting me at the moment is the current balance of power between the US and China. The 2007 crisis hit both countries hard but China appears to have bounced back and is on its feet (although still a little unsteady). The US however has just managed to begin clambering back up the ropes.

[I will cover later why I think China could be back on the floor again].

My feeling is that China smells US weakness but what to do about it? Deliver a knock out blow? But how? China is already aggressively expanding with investment in Africa, Latin America and around the world. The 60th celebrations give China a chance to demonstrate its military might. Taiwan is always lurking in the background and US weakness could provide an opportunity for some action.

One issue to investigate further is that a US decline hurts China given the massive amounts of paper that China owns.

It will be interesting to watch. It is noteworthy that the financial times is picking up on this with a long article on the "Stiring Dragon".

My view is that the US suffered major setbacks under Bush. Ombama might just save them. Policies on biotechnology, online gaming and the rather strange practice of teaching creationism in schools will have a long term negative impact.

China can, and in my view will, capitalise. The US empire is in decline. 2 wars, greedy bankers and some very poor policy decisions have left the door wide open for China to step in and take a world leading position. Sure, China has many many problems that I have covered in this blog but we are looking ahead to the next 20 years.

I love the paper title by Wang Yiwei at Fudan University called “How we can prevent the US from declining too quickly”.

This is a a question that might actually need an answer.

The dragon stirs [FT]

Turn on the television news next Thursday and on display will be the sort of images from China that used to capture the imagination in the days of the Soviet Union. Dozens of tanks will roll down Beijing’s main avenue and past Tiananmen Square, followed by immaculate ranks of goose-stepping soldiers. New military hardware will be proudly paraded, from mobile missile launchers that can reach Washington to J-10 fighter jets produced at a Chinese plant.


Yet the bigger question raised by these celebrations is: what does Beijing really think of the US? Or, more specifically, does it now believe America – embroiled in two wars and with its economy wilting after last year’s financial crisis – is facing inevitable decline? If the answer is yes, it will have big implications for some of the most important global issues in President Barack Obama’s in-tray, from the future role of the dollar to Iran.

The perception that the US is weakened “could imbue Chinese policymakers with the confidence to be more assertive on the international stage”, says Bonnie Glaser at the Center for Strategic and International Studies in Washington.

Chinese leaders rarely make unguarded comments about the US, although Wen Jiabao, prime minister, has articulated fears about a future collapse in the value of the dollar. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets,” he said at his annual press conference in March.

Yet behind the scenes of the country’s rise in recent years has been a fierce debate about the future direction of foreign policy among the think-tanks and elite universities that advise politicians – pitting academics who argue that Beijing should take a more confrontational attitude to the US against those who believe development is best supported by playing within the existing world order.

Until recently, that discussion was on hold because of a consensus that the US was by far the dominant power and would remain so for at least another two decades. The status quo is described as yi chao duo qiang – one superpower and several great powers. Even many who proposed taking a more assertive stance against America often argued that such a posture was not for now. Better to bide our time and develop our economy, they said, and follow Deng Xiaoping’s advice to “hide the brightness, nourish obscurity”.

Yet there are signs the belief in US invincibility is waning. Even before the financial crisis, some scholars were questioning US dominance on the grounds that the Afghanistan and Iraq wars had damaged it both financially and morally. In 2006, Wang Yiwei at Fudan University in Shanghai sparked a huge response with an article that had the provocative title: “How we can prevent the US from declining too quickly”.


China has also become much more aggressive in doing energy deals, including in parts of the world that are politically sensitive in the US. Chinese companies used to be cautious about Latin America, in part because it was considered to be the US backyard, but PetroChina is making a large investment in Venezuela and Sinopec is trying to become involved in Brazil’s new oil discovery.

Chinese oil companies are also investing heavily in Iraq and Iran. Indeed Iran, the country which arguably presents the toughest diplomatic challenge facing the Obama White House, is now China’s third-largest supplier of oil and China has started selling refined gasoline to Iran, in a move that could complicate US efforts to limit the supply of fuel to the country.


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